Cineworld (LON: CINE) (OTCPK: CNNWQ) was always a very long shot for survival. That became longer with the Chapter 11 announcement and now seems entirely extinguished with the way that Chapter 11 has panned out. Yet there are purchases of some 67 million pieces of CINE equity in London. Quite who - or why - there is such buying into something with an objective value of zero is just one of those things. And yes, there do have to be purchases - for every sale there is a buyer after all.
The Cineworld sage is really one of being malpositioned for lockdown. OK, perhaps there was more than just a little bit of corporate hubris there, debt fueled expansion and all that, trying to build the world's largest, or second largest, movie chain. There are decent arguments for economies of scale in this industry - the larger the movie theatre chain then the less of a shafting they've got to take from the movie production houses over terms and conditions. So, not an obviously wrong strategy. Unfortunately, lockdown arrived right in the middle of the attempt to take over Cineplex, the Canada based chain. There was some attempt to insist that lockdown and covid meant force majeure could be invoked but that didn't work. Substantial damages for pulling out must be paid. The effects of lockdown upon revenue, the previously acquired debt pile plus those damages meant Cineworld was bust.
As part of the Chapter 11 process Cineworld tried to find a buyer, deal with the debt pile and all of those good things. This didn't work out as some might have hoped. Indeed CINE has declared that there will be no recovery for the equity. No, there isn't going to be some nub of equity, there will be no payout to shareholders. Stockholders are going to get bupkiss out of this. Well, that happens, the share price of every company does approach zero at some point in its path toward death.
But this leaves us with one puzzlement. All of this is well known. We reported that Cineworld equity was worth nothing a week back. We can understand people selling the stock for fractions of a penny - or just to crystallise losses for tax purposes - but what's really puzzling us is why is anyone at all willing to buy CINE at a price above absolute zero?
